Opinion: Unrest could grip Germany in 2017 and U.S. investors could suffer fallout

Eight years after the most severe financial crisis since the Great Depression upended the world economy, the U.S., the U.K. and other developed nations are slamming the brakes on globalization and making a sharp U-turn for home. Investors, keep your seat belt fastened.

Investing as this global march toward nationalism unfolds will be volatile, says George Friedman, founder and chairman of Geopolitical Futures, an online publication that forecasts and explains global events. Accordingly, whether you are a do-it-yourself investor, work with a financial adviser or contribute to a company-sponsored retirement plan, the political and economic climate ahead demands greater awareness about where your money is committed and why.

The transformation to a more closed, national-centered political and economic world order from an open international structure won’t be completed this year or even next, Friedman adds, but rather will form over the next decade or so, defining Donald Trump’s presidency and that of the U.S. leader who directly follows him.

Globally, this tectonic shift will reshuffle positions and places of power among both nations and corporations. The new political order is at odds with the old economic order, and the ensuing struggle will impact your investments and possibly your job, depending on whether your industry is favored.

The next battleground between populists and globalists looks to be Germany, says Friedman, a respected geopolitical analyst who founded the global intelligence company Strategic Forecasting, known as Stratfor. Indeed, he observes, the biggest threat to both investors and American workers is not China, Russia, North Korea or the Middle East. It’s not the GOP’s expected overhaul of U.S. domestic and foreign priorities. It’s not even a U.S. recession, which Friedman says is unlikely this year.

The most serious challenge to global stability this year comes from rising social, political and economic tensions in Germany, Friedman says. While Germany’s economy appears strong right now, Friedman looks for German exports to decline in 2017. This is serious because exports account for about half of Germany’s GDP. As Friedman explains, Germany depends on world demand for its products — but the anemic global economy leaves Germany, the world’s fourth-largest economy, with few new markets and stiff competition for existing customers. By contrast, the U.S. economy is largely self-sustaining, with exports reflecting just 13% of GDP.

Germany has pinned its economic success on global trade, particularly within the European Union; domestic demand in Germany isn’t great enough to offset declining export revenue. Cracks in Germany’s economy would rattle German banks and open economic and political fissures across Europe and emerging markets, Friedman warns.

“The Germans are way out on a limb,” Friedman says. “The real question of 2017 is going to be if Germany can sustain its exports. If it can’t, that quickly turns into a financial catastrophe at home. You can see the tension building, and in Germany it’s building fast.”

The new order taking shape in 2017 will reshuffle economies and politics elsewhere in the world. In Russia, for example, Friedman sees a nation in decline and short on options. Russia is dependent on oil revenue, but crude prices
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currently aren’t high enough to sustain the country’s spending. Options for China also are limited, Friedman says. China’s government must balance long-term growth, which requires major reforms and sacrifices, against short-term social stability, which favors the status quo.

“There’s global stagnation, and every country is reconsidering the degree of exposure [to international relationships] they’re willing to tolerate,” Friedman says. The U.S. presidential election and the U.K.’s decision to exit the European Union are the most recent examples of countries condemning globalism and championing self-interest.

“Our relationships reset 70 years ago at the end of World War II, where we bought into the idea of a multilateral defense system and that free trade is absolutely a solution,” Friedman says. “Free trade may raise the GDP but has tremendous effects on social distribution of wealth.

“You’re the wealthiest country in the world,” he says about the U.S., “but people can’t buy a house. That has tremendous implications. The lower-middle class is really pressing for justification of [international] relationships. That’s happening in the United States and elsewhere.”

Yet while President-elect Trump and the Republican Party apparently would like to steer the U.S. in an insular, nationalistic direction, it will take time to restructure the world map — economically, politically and militarily, Friedman says. The new president likely will also grapple with a U.S. recession, likely in 2018, Friedman predicts. Trump is “jawboning” companies to keep jobs in the U.S., Friedman says, but economies ebb and flow regardless of who is president, he adds.

“They can claim anything they want, but presidents have almost no influence over the economy,” Friedman says. “The founders did not want a strong president. They wanted a strong commander-in-chief. Congress is way more important on domestic matters.”

Another obstacle to the new administration’s agenda, Friedman says, is that Trump will become president of a divided nation, having lost the popular vote in 2016 and saddled with a low approval rating. Says Friedman: “He has a very vulnerable presidency.”

“You still have a vibrant professional elite that’s heavily committed to the old system,” Friedman says. “They want to hold on to the way it was. We’ve reached a point of deadlock. We have not yet reached a point where the nationalist movement overwhelms. Things have got to get worse.”

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